New study says: Technical Analysis is garbage

Quoting from the paper:

In markets such as Australia and Austria
the most profitable rule is from the Support and Resistance rule family. In both cases the rule
only signals a total of 4 trades in the entire seven year period. The average number of days a
trade is open is 431 in the case of Australia.
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Good thing I didn't read this in the morning, I woulda spit my coffee all over the monitor...
 
If we are talking about two methods of study in which lead to the placing of a trade; Technical Analysis or Fundamental Analysis, you are using Technical analysis. If you want to call it quantitative analysis or clownfartpenis analysis or whatever else, that's fine. This basically just comes down to semantics really. Some people are just so set in their ways that TA is just MACD, RSI, Moving Avg's and the like and nothing else. I believe that, if you aren't trading off of income statements and balance sheets (financials essentially), then you are trading off of SOME form of TA.



Quote from bwolinsky:

Actually, no. Options pricing is not based on fundamental analysis. In fact, the components of option pricing have nothing to do with anything on a balance sheet. Don't you think? Just say, "Yes."


Anyway, this is why I think what I do is quantitative analysis, not technical. There's a much greater difference in option pricing than basing your trades on a simple moving average, RSI, or MACD, which I would agree, doesn't work.

Options pricing is a wonderful tool. It tells exactly what the market thinks the price of an option should be worth, and in doing so can expose the direction the market will "most likely" move in and also "by how much" it will move. Nothing at all about a company's fundamentals has anything to do with the price of these derivatives. I've adapted these models to price ETF derivatives, like SDS, SSO, MVV, MZZ, DXD, DDM, and especially QID and QLD. It can really be adapted for any highly correlated pair, and can be used on put/call prices as well.

Without the model, though, black scholes is a useful tool, and this is the only example that would trump your statement.
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Quote from R. Raskolnikov:

If we are talking about two methods of study in which lead to the placing of a trade; Technical Analysis or Fundamental Analysis, you are using Technical analysis. If you want to call it quantitative analysis or clownfartpenis analysis or whatever else, that's fine. This basically just comes down to semantics really. Some people are just so set in their ways that TA is just MACD, RSI, Moving Avg's and the like and nothing else. I believe that, if you aren't trading off of income statements and balance sheets (financials essentially), then you are trading off of SOME form of TA.
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Whatever. Apparently options pricing theory is beyond your arsenal of trading.
 
Dumbass, you just TOLD me that options pricing is NOT based on fundamentals....hence you are using some form of TA to make your trading decisions!!

Quote from bwolinsky:


"Actually, no. Options pricing is not based on fundamental analysis. In fact, the components of option pricing have nothing to do with anything on a balance sheet."



Whatever. Apparently options pricing theory is beyond your arsenal of trading.

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"In markets such as Australia and Austria the most profitable rule is from the Support and Resistance rule family. In both cases the rule only signals a total of 4 trades in the entire seven year period. The average number of days a trade is open is 431 in the case of Australia."

Well spotted Peta. Made my day and worthy of the Jokes2 thread. If he was a day trader he'd spot S&R once every month.
 
Quote from bwolinsky:

Options pricing is not based on fundamental analysis.
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Inputs common to virtually all options pricing models - underlying price and historical volatility - are at least partially a function of FA.

Therefore options pricing is also at least partially a function of FA.
 
Quote from Daal:

discuss

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1181367
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There are quite a few papers on effectiveness of technical analysis. "The Profitability of Technical Analysis: A Review" says there are over 130, and that was in 2004. There are many arguments both for and against.

At least one has to consider that shorter timeframes might be more influenced by TA. The paper linked above, "Technical Analysis Around the World", studies trading systems with buy signal and sell signal, usually spaced by a holding period. (And finds TA useless.) Whereas the paper "A Non-Random Walk down Canary Wharf" studies effectiveness of next day trading only. (And finds TA useful.)

The Profitability of Technical Analysis: A Review
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=603481&rec=1&srcabs=566882

Technical Analysis in Financial Markets
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=566882&rec=1&srcabs=1181367

A Non-Random Walk down Canary Wharf
http://mpra.ub.uni-muenchen.de/9871/
 
Quote from maxpi:

Somebody better tell Don Bright that TA doesn't work, he needs to tell all those traders doing opening range breakouts quick before they blow up :eek:
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you know for many years i wonder why don bright is so anti TA i have tried to prove time and time again to anyone that not only does it work but you can do it automatically like a money machine.

so don dont like ta maybe he dont swing that way? but i love ta guaranteed 100% red blood guy i am. lol

without ta i guess don serves a purpose to the market - liquidity
 
There is a boatload of papers on SSRN defying the non-sense that is the Efficient Market Hypothesis. Classic TA is only one piece of the picture.
 
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